Study Platform Banking and Digital Ecosystems

PwC Study – March 2019
Platform Banking & Digital Ecosystems

Cooperation with third-party providers as an important
factor for providing a wide range of services and
products
Partnership establishment in
the German banking market
remains on a high level –
mainly focused on improving
the banks’ product offering
Holger Junghanns Partner, PwC DE

Dr. Marcus Niebudek Senior Manager, PwC DE
Platform Banking & Digital Ecosystems –
What you will find inside our study
1 Key Findings A lot has been written about the relationship between FinTechs and Financial Institutions,
Partnership development is where the trend has shifted from ‘foe’ to ‘friend’. For example, the PwC Global FinTech report
gaining momentum 2017 states: “82% of incumbents expect to increase FinTech partnerships in the next three to
five years”.
2 Future of Banking Banking partnerships can go beyond collaborating with FinTechs. Therefore we researched all
Different plays in the new partnership announcements between banks and Third Party Providers between 2012 and
banking ecosystem 2018 for the German market. The aim of this research is to shed light on the increasing
importance of partnerships for banks to realize their strategic agenda, and how banks can
make partnerships and ecosystems work for them.
2 Guidelines
How to make banking ecosystems The publication resulting from our research consists of three parts. In this first part we
describe the market dynamics that we observe based on public announcements. In the
work
second part, we discuss the new banking ecosystems and provide guidance how banks can
strategize in this new reality. In the third part, we discuss learnings from previous
Appendix engagements that we did around partnerships and present guidelines how banks can start on
A. Methodology & Definitions making ecosystems work for them.
B. Comparison Germany vs.
the Netherlands
PwC’s Digital Services 2

Our study provides an overview of the partnerships with TPPs
Previous Research Goals
• PwC-Publications 2018: FinTech-Kooperationsstudie “Cooperate instead of • Provide information on the different kinds of innovative partnerships of
compete” (06/2018); FinTech-Kooperationsradar (10/2018). Financial Institutions with Third Party Providers (TPPs), including FinTechs,
• PwC-Publications 2017: Global FinTech Survey 2017. as well as more established companies.
• Create a comparison between partnerships in the German market and
those in the Dutch market, for which a similar study has been conducted, to
find information about differences and similarities in both markets.
Time Period Source of Data Research Analysis

Considered Focuses
• We considered the time • The sources of the data were • The following topics are considered • With the help of the data
period up to the end of 2018. publicly available information on in the study: different coherences and
• The information volume was and announcements of Year of partnership establishments, commonalities between the
better, the closer one got to partnerships in German and equity-relationship, service sectors in different partnerships have
the present. English, available in which partnerships were established, been found; the results are
newspapers, websites of the strategic goals of the partnerships, presented graphically in the
banks or the TPPs, financial and partnership design. following.
forums, online data bases, etc.

Key findings of our study
The main strategic goal of banks to involve in partnerships is to improve their product offering in regard to both retail clients
1 and corporate clients.
With regard to Banks‘ traditional areas of activity, there is a growing saturation concerning retail and corporate banking business; New
2 partnerships focus on “Beyond Banking” solutions which emphasizes the transformation of banks towards solution providers that are able
to provide services beyond the scope of traditional banking services.
Different forms of partnerships (e.g. white labeling, outsourcing) can be observed between banks and FinTechs – however, there is
3 a trend towards API integration of banks‘ and FinTechs‘ infrastructure.
4 Especially Challenger Banks promote their solutions in terms of „Platform Banking“ by using API-based product offerings.
The trend towards setting up new partnerships in Germany further remains on a high level, while it continues to rise in the Netherlands.*
5
* In Germany only the most prominent banks were observed. However the Hypo-Vereinsbank withdraws from German FinTech market since 2018. Assuming
that the HVB would have continued to cooperate with FinTechs, the increase in Germany would have been clearer.

1
Key Findings

The number of new partnerships concluded by Challenger Banks has
developed similarly to that of Incumbent Banks
• In total, Incumbent Banks concluded more partnerships than # of Partnership

Engagements
Challenger Banks – which is mainly due to the larger number of
Incumbent Banks in this study. 60 58 59
• Until 2016, a strong increase in the number of new partnerships 55

was observed. 51
50
• Afterwards, the trend flattened out – however, there is still a high
level of new partnerships. 45
• It is likely that in the last 2 months of year 2018 additional new 40

partnerships will be established or the existence of already
35 33
established new partnerships will be disclosed.
30 29
• Possible reasons for the decrease in number of new partnership
announcements: 25 23
21
• The UniCredit Bank (HVB) has withdrawn from most of its investments in 19
20
2018 and since then did not participate in new partnerships. 16 16 16 17
15 14
• This research was focused on the “big players” in the respective bank 15
categories. It can be assumed that these banks started concluding 11 10 Total
partnerships earlier than other banks and therefore have reached a 10 8 8
6 7 Large Incumbents
certain degree of saturation. Minor banks, which may be following the 5 4 Small Incumbents
2 3
trend and may currently still be in the process of expanding their partner- 1 Challenger
ships, were not included in this research. 0
≤2013 2014 2015 2016 2017 2018 Time
Partnership establishment in the German banking market currently
remains on a high level
• Generally, Incumbent banks entered into more Average Number of Partnership

Engagements per Bank Category
partnerships than Challenger banks did.
8.5 8.20
8.0 7.80
• Until 2016, the number of newly founded partnerships increased 7.25 7.38
7.5
rapidly, whereas from 2016 until 2018 it remained on a high level. 7.00
7.0
6.5 6.33 6.38
• Challenger banks started to engage in partnerships on a big scale 6.0 5.67
in 2016. The numbers are partly also due to the fact that the 5.5 5.33
5.00
Solaris Bank, which entered into many partnerships was founded 5.0
only in 2016. 4.5
4.0 3.63
3.5
• A relatively large proportion of the challenger banks partnerships
3.0
in 2017 involves partnering with accounting software vendors.
2.5 2.20
The majority of these vendors also partnered with incumbent 2.00
banks in the years prior to 2017. This does not necessarily imply 2.0
1.50 1.38 1.33
that incumbents are ahead of the curve compared to challenger 1.5 Total
banks as illustrated by the example below. 1.0 0.50 0.60 Incumbents
0.5 0.33 0.33 0.33 Challengers
0.0 Time
≤2012 2013 2014 2015 2016 2017 2018
Non-equity partnerships clearly outweigh equity partnerships
• The number of partnerships without equity participation of banks

clearly exceeds the number of partnerships in which banks have
17%
acquired shares of their partners.
• In case of partnerships with financial participation from banks, the

outstanding role and high expectations regarding the future
of the partner company were often emphasized. 5%
• This leads to the conclusion that banks primarily invest in their

partners if, in addition to the relevance of the offered services for
their own business, banks also believe in the long-term success
and potential market dominance of their partner.
• Please note that full acquisitions and sponsorships are not 78%
Non-Equity
considered relevant partnerships for this study and are thus
Minority Equity
excluded.
Joint Venture

Non-equity partnerships are predominant among Challenger Banks
as well as Incumbent Banks
Equity Relationships in %
3% 0% 6% 7%
• The larger and more established banks are, the more often they
invest capital in their partners. 13%
• Incumbent Banks have more investment capital available. 28%
• For large banks it is important to have an active role and/or veto-right
during decision making (e.g. in regard to the commercialization phase).
• Challenger Banks rarely enter into equity partnerships.

97%
• Challenger Banks have only limited investment capital.
• From a strategic point of view, the cooperation with a self-directed 81%
FinTech is preferred. 64%
Joint Venture
• Nonetheless, non-equity partnerships are predominant for all Minority Equity
types of banks. Non-equity
• Higher degree of flexibility (e.g. in regard to exit-option).
Class
Challenger Banks Small Incumbents Large Incumbents

Offering new products or further developing existing products is the reason
for almost half of all partnerships
4%
9%
• Offering FinTech services improves quantity and quality of the
products provided – which helps to retain the bank’s customer
base.
• In about a quarter of the cases, the bank enters into partnerships 16%
with companies whose technology would be too difficult for the 48%
bank to produce itself.
• The partnerships that banks enter into in order to get access to

the network of partners are mostly about the existing the partners’
customer base.
23%
Improve Product Offering Access Partner Network Enter New Markets

Access Partner Technology Increase Efficiency

In the past few years, improving the product offering was the dominating
goal of many partnerships
1%
100%
• Looking at different periods, the most important reason for 5%
9% 7% 8%
entering into partnerships was the improvement of product 12%
90% 10%
offering. 29% 9% 12% 8%
• Nonetheless, the proportion of partnerships designed to improve 80% 12%

product offerings tends to decline as efficiency gains and entry 20%
into new markets become more important. 25% 19%
70% 24%
• Example for Enter New Markets:
60% 21% 32%
• Digital international loan marketplace (loan securitization)
14% 20%
• Digital issuance of bonds to finance small and medium-sized enterprises
50%
• Example for Increase Efficiency:
• Digital credit process: from application to loan approval (e.g. no post-ident 40%
procedure is needed anymore)
• Analysis of unstructured data, which is in line with compliance 30% 60% 58%
requirements 50% 48%
43% 45% Enter New Markets
• This development is in line with the development of a platform 20%
Increase Efficiency
economy which is also characterized by access to international Access Partner Network
markets and the development of new product/market 10%
Access Partner Technology
combinations. Improve Product Offering
0%
• It remains to be seen to what extent this development will
≤2013 2014 2015 2016 2017 2018
continue in the future.
The strategic goals of the different bank categories are similar to each other
100% 3% 3% 3%
• The separate consideration of Challenger, Large and Small 7%
Incumbent Banks strengthens the statement that the primary 4% 11% 12% 11%
90%
reason for entering into a partnership was to improve product
offering.
80% 15% 12% 14%
21%
• Regarding the Incumbent Banks, the proportion of partnerships 70%

which allows access to the partner’s technology was slightly
higher. 60% 16% 25% 26%
26%
50% Enter New

• “Legacy IT systems” at Incumbent Banks are typically not or only Markets
partially prepared to meet today’s digital requirements. With a 40%
Increase
Efficiency
partnership, innovative software solutions from FinTechs can be
Access
accessed. 30% Partner
52% Network
45% 48% 46% Access
20%
• Challenger Banks‘ online operations require a modern software Partner
Technology
and IT environment. Compared to Incumbent Banks, the focus
10% Improve
is less on partnerships designed to provide access to new Product
technologies. Thus the focus can be more on developing Offering
0%
partnerships to improve product offerings.
Challenger Large Small Incumbents
Incumbents Incumbents (total)
Most partnerships were concluded in the service sector Payment,
followed by Lending & Factoring, and Financial Investments (1/2)
100%
90%
16%
80%
26%
70%
60%
13%
Lending and Factoring 50% Other
Payment Online Identification
Financial Investments 40% Comparison Portals
4% 11% Personal Finance Blockchain &
Insurance 30% Crypto Currencies
5% Account Account
Blockchain & Insurance
20%
4% Crypto Currencies Personal Finance
10%
Comparison Portals Financial Investments
8% 3% 10%
Online Identification Payment
Other Lending and Factoring
0%
≤2013 2014 2015 2016 2017 2018
Most partnerships were concluded in the service sector Payment,
followed by Lending & Factoring, and Financial Investments (2/2)
More than half of the partnerships surveyed focus on traditional On the other side, partnerships also aim to provide products and
banking services: services beyond the traditional banking services:
• Payments (26%): • Beyond Banking:
• Mobile Payment Services: Text recognition (transfers), payments via App • Development of a bank from product provider to solution provider,
• Commercial Payment Systems: iPad-Cash Register System, Payment i.e. also for topics beyond the current banking business:
Terminal via App • Accounting-/Tax-Solution for corporate clients
• Data-Analytics-Tools for retail clients
The Payment Service Directive II (PSD2) gives access to Incumbent banks’
client information, therefore reveals new business opportunities for FinTechs, and • The additional service offering strengthens costumer loyalty
hence increases competition in the market. The Incumbents are aware of this because the demand can be served directly by the bank and
threat and want to benefit from the FinTechs’ innovativeness by establishing customers have no incentive to switch to another provider.
partnerships.
• As a result of the partnerships, it is not necessary for banks to
• Lending & Factoring (16%) invest internal resources in developing such new services.
• Crowdfunding is one of the most present topics concerning Lending & • The expansion to a distribution platform may influence the bank’s
Factoring. The Focus is not only on providing solutions for retail clients but
brand recognition positively, which simultaneously represents a
also on providing solution for medium-sized companies.
sales-promoting factor.
• Financial Investments (11%): • According to the “PwC-Kooperationsradar” 60% of future

• Partnerships with FinTechs enable banks to offer digital asset management partnerships between banks and FinTechs focus on “Beyond
or digital investment advisory solutions (e.g. Robo-Advice). Banking”.*
PwC’s Digital Services *FinTech-Kooperationsstudie „Kooperieren statt konkurrieren – 14
Platform Banking & Digital Ecosystems FinTechs und Banken kommen zusammen (Juni 2018)
The importance of API integration remains very high, that of Referrals is
increasing, while that of White-Labeling and Outsourcings is decreasing
100%
• It can be expected that the trend of partners accessing the banks' 9% 8%
13% 10%
infrastructure as the basis for the their own business (API 18%
90% 24%
integration) will continue. Possible Reasons:
7% 16% 18%
• Banks take over activities for which a banking license is required but are 80% 19%
barely visible to the customer.
13% 18% 7%
− Example: When a FinTech offers lending services, the loan is 70%
ultimately provided by a partner bank. 18%
• FinTechs are no longer mainly interested in product partners, but also in 22% 24% 15%
60%
service providers concerning the IT infrastructure or even back-office 2%
activities.
50% 2%
• Almost half of all API integrations result from partnerships with 40%
13% 16%
challenger banks which focus primarily on product solutions that 40% 27%
are easy to implement with the respective cooperation partner. 55% 22%
• Since January 2018, the Payment Service Directive 2 (PSD2) has 30%
Referral
been in effect and acts as an additional catalyst concerning API
White-Label
Integration. 20% 38% 36% BPO
• The trend to integrate third-party services as white-label solutions 27% 26% 27% Development
10%
into bank’s own portfolios or to outsource certain processes to Collaboration
9%
external service providers is decreasing, whereas banks Integration
0%
increasingly refer their customers to partners for services that
≤2013 2014 2015 2016 2017 2018
they themselves do not (want to) provide.
Deep-Dive: Application Programming Interfaces (API)
What are APIs? Advantages of API: Examples of offered services:
• APIs are either stand-alone software • APIs enable the integration of digital • Aggregation of Financial Sources
packages or connected to existing systems. products and services into exiting IT • Access to Accounts (XS2A)
• They are used for communication (using the systems so that they can be used by
others. • PSD2 compliant implementations
internet as communication channel)
between (software) applications. • APIs enable FinTechs to offer banking • Account Information Services (AIS)
• An API is a communication point that can services without acquiring a banking license • Enables fully automated retrieval of account
or investing in the development of a information from the account-holding bank in
be addressed by others to obtain or provide order to present transaction data in a user-
certain content. banking infrastructure.
friendly, categorized and clear manner.
• “OpenAPI” can be accessed by anyone • Products and services are available on
• Payment Initiation Services (PIS)
who wants to integrate the services of the demand:
• User can use an online banking access to
API into their own system. • No waiting times initiate a transfer without interacting directly with
• “PrivateAPI” can be accessed for internal • No branch visits necessary his bank.
company use or between partner • Increase cross-selling potential by Challenges:
organizations. integrating banking services into non- • Banks keep access to their own IT closed
banking applications. (integration into banks' own IT systems is
necessary).
• Deutsche Bank, Commerzbank and the
“Sparkassen” work on their own API
platforms.
Partnership structures differ between Incumbent Banks and Challenger
Banks
100%
• In about half of all partnerships of challenger banks, partners
10% 10% 12%
receive direct access to the bank's infrastructure. Possible 16%
90%
reasons:
12% 13%
• Online based business models go hand in hand with a higher customer 80% 15%
affinity towards integrative solutions. A key service of challenger banks, 17%
for example, is providing API interfaces.
70% 19%
• The corporate structure and digital corporate culture of challengers banks 21%
are close to FinTechs and are favorable for the decision to enter into a 21%
60%
partnership in the form of an API integration. 20%
1%
• Incumbent banks focus more on the development of new products 12%
50% 2%
or on improving existing ones in cooperation with the respective 3%
partners. The share of API integrations is only about half as high 40% 30%
as that of challenger banks, which can be attributed to a greater 27%
degree of “reluctance” to grant access to the bank's internal IT 22%
30%
infrastructure and probably a less modern and innovative mind- Referral
set. 47%
White-Label
20%
BPO
• The proportion of partnerships with the purpose of process out-
sourcing does not differ significantly between challenger and 24% 22% 23% Development
10%
Collaboration
incumbent banks.
Integration
0%
Challenger Large Small Incumbents
Incumbents Incumbents (total)
Banks can act as one-stop financial service providers to strengthen their
competitiveness and generate new sources of income
100%
Example – Insurance:
90%
In a partnership, banks have the opportunity to...
80%
1. ... offer insurance products for the first time (e.g. cooperation
70%
between challenger bank N26 and insurance broker Clark).
60%
2. ... expand the existing range of insurance products, as they can
partner up with several insurers. Thus, the customers can be 50%
advised more purposefully. 40%
3. ... save costs, since the consultation, the closing and the 30%
portfolio management can take place digitally. 20%
10%
Example – Personal Finance: 0%
Finance
Identification
Factoring
Payment
Investments
Insurance
Portals
Account
Currencies
Other
Realization of individual offers for different customer needs – e.g.:
Comparison
Personal
Lending &
Financial
Online
Crypto
Blockchain &
1. Tools for analysis of account turnover to improve liquidity
management for private customers (“Haushaltsbuch”).
2. Individual offers (e.g. cheaper energy providers) based on
evaluation and analysis of account transactions. Improve Product Offering Increase Efficiency
3. Automated handling of subareas in the tax declaration. Access Partner Technology Enter New Markets
Access Partner Network

Depending on the service sector, the preferred form of cooperation varies
100%
Example – Online Identification:
90%
• The whole identification process that is needed, for example for
80%
opening a bank account, can be outsourced to Online
Identification providers. They enable a successful identification 70%
process in often less than 10 minutes without the need of a 60%
branch visit by the customer.
50%
40%
Example – Account: 30%
• In particular, account switching services are outsourced because 20%
the German payment account law (Zahlungskontengesetz -
10%
ZKG) promotes a standardization of these processes.
0%
Finance
Identification
Factoring
Payment
Insurance
Investments
Portals
Account
Currencies
Other
Comparison
Personal
Online
Lending &
Financial
Crypto
Blockchain &
Example – Personal Finance:
• High level of integration, which allows the query and analysis of
customer-related data on an individual level.
• Drivers on the regulatory side are PSD2 and on the technical
side the further development of API interfaces. Integration Development White-Label
Collaboration BPO Referral

Future-proof banks connect to partners to be able to offer customers
the best products and services available in the market
• Partnerships are growing in importance for all types of banks
(incumbents and challengers), with the main goal to improve
their product offering, or to access TPPs’ technology.
• If German banks want to grow, they need to improve their product
• Banks provide TPPs the possibility to scale, by allowing access offering more than ever. Market growth in the banking sector will
to customers, funding or associating their trustworthy brand. In be flat or decline in developed economies as the population ages
return, TPPs provide banks access to their specialized products, and more liquidity is provided outside the banking system.
services and/or specific innovative technology, thus enabling banks
to meet the bar of heightened customer expectations and demands. • To be fit for growth, banks should let go of the – disrupted – idea
• The main structures used in partnerships are integration and of a vertically integrated bank and view banking as an ecosystem
collaboration. When studying these main partnership structures, the of partners.
common denominator is that an IT connection between the bank and • Growing traction in the number of partnerships shows that the
the TPP is an important factor for success. market is ready. To be successful, it is up to bank leadership to
• Besides legal and compliance related issues, this poses a huge decide where to play in this new ecosystem, design their strategy
challenge in many partnerships: How to connect on-premise legacy accordingly and partner-up.
IT systems of a bank to open and state-of-the-art IT infrastructure
of TPPs without endangering the stability and security of the banks’
IT systems?
• In addition, ‘power’ is shifting from financial institutions towards the
• The legacy aspect mainly holds for incumbent banks, but also consumers, whose experience is driven by state-of-the-art customer
challenger banks need to find a way to connect TPPs to their IT experiences outside the sector like for example Uber, Spotify or
infrastructure without necessarily making them part of their Facebook.
landscape.
2
Future of Banking
Different plays in the new Banking Ecosystem

Vertically integrated companies called banks are disrupted by
three trends
Customer
• Banks used to be vertically integrated companies,
offering individuals and corporates a variety of financial Individuals
products/services and being the link between them and
Corporates
the financial market (infrastructure). Banks used to own
the customer across the financial chain as well as to use
their data in sales, support & risk functions. Flow of capital
• Nowadays, trends in technology, regulation and Front Office: Sales &

customer experience disrupt the traditional bank as just Distribution
described. Back Office: Product
management & Operations
• Technology will reshape the landscape of banking Payments & cash management
applications and infrastructure (e.g. cloud computing, Savings
blockchain, API’s, artificial intelligence, open source Loans & mortgages
software). Investment management
Capital origination
• Regulation will accelerate fragmentation of the value
chain (e.g. PSD2). Flow of capital
• Customer experience will continue to widen its scope
Market: Infrastructure
(e.g. gamification, loyalty, context and location aware
services, leveraging social networks, guided self-service,
more convenient security through biometrics).
*Examples for illustration purposes

Vertical integration turns into an ecosystem with different layers
1. Networks: Networks facilitate in interbank communication and 7. (Robo) advisors & services
money transfer. P2P Social
Payments
6. Aggregators Mobile
Payment E-
2. Infra & Core Banking Systems: Infrastructure and application Applications Wallets
running hereon ensure that banks can offer core banking services 5. API Integrators
such as payment processing and account management. 4. API Providers
3. Transformation Function: Everything needed to attract money 3. Transformation
(savings) and to provide loans. Transformation function contains
Personal Function Alternative
Financial Financing
2. Infra & core
functions such as banking license, asset holder, card issuer, Management
banking systems
Provider
Asset-Liability Management, KYC, etc.

1. Networks
4. API Providers: This is a new capability for banks in which they act Account
(Credit)
Card
Provider
as API provider and consumer to share data. Issuers
Crowd
Loyalty
Funding
5. API Integrators: An API integrator is a company that collects and services
Depositorie
Bank Platforms
License
integrates different APIs and sells the resulting datasets or engine. s of Trust
Holder
6. Aggregators: An aggregator combines different (financial) services Asset

KYC / AML
/ ALM /
in one customer portal, often combined with (advisory) services Payment
Holder
Risk Investment
(layer 7). Service
Providers
Crowds of
Wisdom
7. (Robo) Advisors & Services: This layer encompasses the customer

interface. In the past this would be the branch networks. Alternative Brokerage
Payments Robo
Nowadays it contains a variety of customer services such as Rails Advisors
mobile payments, lending, robo-advice etc. P2P Lending

Platforms
Each layer comprises its own sub-industries…
1. Networks: The networks subindustry formed by traditional parties 7. (Robo) advisors & services
such as SWIFT could be disrupted by Blockchain solutions. P2P Social
6. Aggregators Mobile
2. Infra & Core Banking Systems: Traditional (legacy IT) assets of a Payments Payment E-
Applications Wallets
bank such as core banking systems can be sourced externally 5. API Integrators
from companies like Figo.
4. API Providers
3. Transformation Function: Companies like Fidor Bank offer core
3. Transformation
banking services as well as services that accommodate Personal Function Alternative
transformation functions. Financial
Management 2. Infra & core
Financing
Provider
4. API Providers: Under PSD2, banks need to provide an API banking systems
platform so TPPs can access user information if consented. Other
1. Networks
API providers in the ecosystem could be any party with financial
data (e.g. for providing market data). Crowd
Loyalty
5. API Integrators: Already many API integrators emerged which services Funding
Platforms
connect bank accounts to an app to structure data or to build
financial profiles (e.g. Candis).
6. Aggregators: Examples of aggregators are Numbrs and Bankomo,
allowing users to see their financial information from different Payment
Service
Investment
Crowds of
accounts. Providers Wisdom
7. (Robo) Advisors & Services: A lot of innovation has happened in

this layer and wide variety of examples can be categorized here, Alternative Brokerage
Payments Robo
each excelling in specific financial services point solutions. Rails Advisors
P2P Lending
Platforms
… and has its own key capabilities and earnings model
Key capabilities Earnings model
• Banks used to be vertically integrated, mainly addressing
• Technology (network, security, • Investment for new protocols
layers 2, 3 and 7. The largest change between a bank as a 1. Networks stability, etc.) and standards
vertically integrated silo and banking as an ecosystem is the • Scale • Pay per use or license
origination of layers 4, 5 and 6 as well as a lot of innovation by
• Technology (software, • Capex investment for IT
non-banks (FinTechs) in layer 7. 2. Infra & core
accessibility/ connectivity) • Pay per use or license fee
banking systems
• Within the new ecosystem, each of the layers has its own key • Scale (IaaS, PaaS, SaaS)
capabilities and earnings model. Capabilities vary from

• (Speed of) product innovation
utilizing economies of scale in layers 1-2, to excelling in 3. Transformation
• Excellence in risk and
• Opex for expertise
function • Interest- and fee income
customer experience in layers 6-7. compliance (e.g. ALM, KYC)
• An overarching capability that is valid for all layers, is the • Data infrastructure, security and • Opex for IT as a service
ability to innovate fast to be able to fulfill changing customer 4. API provider privacy • Data as a Service, pay per use
needs. • Pricing model (e.g. API call) or subscription
• The new paradigm of ecosystem banking offers a plethora of • (Speed of) innovation of new • Buy and sell API’s
earning models, many of which are not based on interest 5. API integrator data solutions • Pay per use (SaaS) or license
• Network of databases fee from TPP’s
spread thereby offering banks a hedge for interest (spread)
earnings. • Customer experience • Buy API’s
6. Aggregator • New data insights for users • Freemium, advertisements, pay
• Revenue models in this new world generally are usage-based, • Network of financial sources per use, license, referrals
e.g. subscriptions and pay-per-use. Costs structures change
from capex for layers 1-2 to more opex-driven business in • Customer experience • Customer acquisition cost
7. (robo) advisors • Added value of service • Various models, most common
layers 3-7. & services 25
• Pricing model is fee income

Developing an ecosystem business model requires
a new strategic approach
Traditional Business Strategy Ecosystem Business Strategy
What business are we in? What capabilities are we uniquely good at (assets)?
Who are our customers? What ecosystems can benefit from our assets / capabilities?
Through what channels can we reach our customers? What relationships will allow us to enter these ecosystems?
What partners can help us reach through those channels? Which capabilities do we connect to which relationships?
How do we continuously optimize connections to win, serve,

How can integration increase value chain efficiency?
retain customers?
APIs are primarily a way to foster execution APIs are enabling the bank’s core assets and capabilities to create new
of a bank’s go-to-market strategy. business within an ecosystem of partners, communities, customers, etc.
A bank can try to scale its own ecosystem with third party services and/or
expand into partner ecosystems selling unique capabilities as a service
Banks‘ Ecosystem: bank is primary customer interface, adding third Partners‘ Ecosystem: bank as node in partner ecosystem, selling unique
party services to a basic bank with an API layer capabilities as a service
Robo-Advise Investment
analyses
Health
API Digital account

opening
€ Income& Mobility
Tax
Bank €
Cloud
lending
Tax
applications
Scanning
Electronic Travel
Account Aggregation Vault
Voice …

Platform Banking & Digital Ecosystems End-to-end banking products Enabling components Plug-in value added services
Banks have various future models they could pursue depending on who they
want to be
• Bank as an utility & balance sheet: in this model the bank sells 1. Networks
‘traditional’ banking services, IT and connectivity. These pro-
viders have a banking license, provide their (commoditized) Bank as an
services at low costs and manage to make a profit through utility & 2. Infra & core
banking systems
operational excellence and economies of scale. balance sheet
• Bank as a platform: These banks make use of the core
3. Transformation
banking systems of others but have their own banking license. function
These banks have a differentiating transformation function
that they disclose to others through APIs. Operational
4. API provider Bank as a
excellence and expertise are key success factors.
platform
• Bank as a customer experience (CX) / user experience (UX)
ecosystem: These banks focus on owning the primary custo- 5. API integrator
mer relationship through excellent customer experience and Bank as
engagement. They do not have a banking license and connect CX
to services of partners including ‘traditional’ banking services 6. Aggregator ecosyste
and infrastructure. m
CX/ UX
• Bank as a customer experience (CX) ecosystem: Like CX / UX ecosyste (robo) advisors &
7.
banks, CX ecosystem banks focus on owning the primary m services
customer relationship. CX banks also offer partner services
but use their own ‘traditional’ banking suite, and thus need a Platforms outside
8.
banking license. banking

2
Guidelines
How to make banking ecosystems work

Ecosystems provide (inevitable) opportunities for banks if key challenges
are managed successfully
Ecosystems… … bring opportunity… … but also involve challenges

Establishing / expanding ecosystems is an 1. Strategy: “join versus build”-challenge
opportunity for banks to
2. Value proposition: scalability and
customer experience / engagement
• Strengthen their value proposition, 3. Partnering: agile and flexible partnership
thereby increasing loyalty of existing deals with the right partner
customers and attracting new
customers 4. Operating model: support within own
organization, required resources and
capabilities to be a good partner
(technical and organizational), partnership
• Access new customer platforms and management
End-to-end banking products Enabling components Plug-in value added services address new segments
5. Change management: overall significant
• Proposition portfolio centred around change management challenge
customer need
6. Launch: launch and rapidly scale your
• Network of (>= 2) companies/ institutions • Benefit from (Fintech) innovation
platform supporting your ecosystem
that interact to create a combined client
proposition
proposition, thereby generating value for
each partner • Gain new data insights that offer
• Enabled by a technology platform which insights for product development or risk
connects all elements (primary products/ reduction
services, enabling services, data)

Key topics and questions to consider in order to make banking ecosystems
work for you
Ecosystem challenges Typical questions to consider

• Will you provide banking services on ecosystems of others (join), or build your own banking ecosystem (build).
1. Strategy • Do you have assets to orchestrate an ecosystem (e.g. brand, platform, financial resources, capabilities, scale)?
• What is your “win-win loop” for all participants? And is this scalable?
• How will you divide the value you create among stakeholders? (e.g. pricing, benefit sharing, tax deductions, …)
2. Value proposition • How do you create frictionless entry in a world with KYC requirements? How will curation work (prevent abuse)?
• Does your value proposition allow for side switching (i.e. consumers becoming producers and vice versa)?
• Who should you partner with? Do you have capabilities, processes and frameworks to find partners?
3. Partnering • Do you have capabilities, processes and frameworks to organize and manage partners?
• How will you simultaneously optimize the capabilities and complexity of your partner portfolio?
• Are you suited to act fast on global platform partnerships?
4. Operating model • How is your platform or ecosystem Target Operating Model different from your traditional operating model?
• How will you transition your operating model to an ecosystem model, or enable success in both worlds?
• How will you solve internal conflicting interests (e.g. partnership that results in global but not per se local gains)?
5. Change management • How will you create a culture around ecosystem-thinking?
• Should you first focus on partners/producers or customers/consumers in your ecosystem/platform?
• What are the incentives for partners to join the ecosystem when there are no/multiple customers?
6. Launch • What are the incentives for customers to join the ecosystem when there are no/multiple producers?
• Where should you launch the ecosystem? (e.g. geography, customer segments)
• How should you launch the ecosystem? (e.g. event, using other networks, soft-launch with existing customers)
Confidential information for the sole benefit and use of PwC’s client.
Appendix A
Methodology & Definitions

In this study, three types of banks were observed:
Large and Small Incumbent Banks as well as Challenger Banks
Categorization Description Examples

The term “large incumbent banks” refers to financial institutions offering banking
services prior to 2000, characterized by having an extensive physical branch network
Large and a prominent presence in their relevant target markets.
Incumbent In this study, the three largest German banks by balance sheet total (excluding
Banks development banks and central institutions of cooperative banks) were examined.
These are the following: Deutsche Bank, Commerzbank and Unicredit Bank
(HypoVereinsbank).
The term “small incumbent banks” refers to financial institutions offering banking
services prior to 2000, characterized by having a physical branch network and a
Small
prominent presence in their relevant target markets.
Incumbent
In this study, the cooperative banks and savings banks as well as their central
Banks institutions (even though their balance sheet totals might qualify as large incumbent
banks) were examined.
The term “challenger banks” refers to new, completely digital banks set up after 2000,
Challenger usually offering only selected banking services.
Banks In this study, the probably most prominent German Challenger Banks were examined:
Fidor Bank, solarisBank, and N26.

Banks entered into partnerships with companies from various service
sectors or to implement specific services (1/2)
Service Sectors Description Examples

• Directly act as lender
• Broker loans for customers
Lending and
• Dunning solutions
Factoring
• Crowd funding platforms
• Solutions for managing receivables / factoring solutions
• Financial transaction solutions (often integrated into existing banking solutions)
Payment • Often innovative technologies or processes are used for payment solutions
• Payment terminals
• Offer investment opportunities in stocks, shares, fixed-interest financial products
Financial • Digital solutions for portfolio management
Investments • Marketplace for trading
• Tools to provide guidance in investment decision making (e.g. robo-advisor)
• Providing support in managing, structuring and planning finances of private /
Personal Finance corporate customers
• Brokerage or offering of insurance products
Insurance • Management of insurance contracts
• Special offers / conditions
Partnerships could be classified into more than one service sector
Banks entered into partnerships with companies from various service
sectors or to implement specific services (2/2)
Service Sectors Description Examples

• Online banking solutions
Accounts
• Innovative applications and features added to existing online banking solutions
Blockchain • Crypto currencies

and Crypto • Financial transaction solutions based on blockchain
Currencies • Information sharing systems based on blockchain
Comparison • Platforms comparing offerings (mostly loan- / financing-related) of banks

Portals • Innovative portals that find the best financing strategies for specific customer groups
Online • Identification solutions that replace traditional identification processes, such as

Identification the “Postident” process
• Comprises of all other services that have not been mentioned so far, e.g.:
• CRM and sales systems
Other • Consulting providers offering all kind of SaaS solutions
• Document-security systems
• Internal knowledge management systems
Partnerships could be classified into more than one service sector
Banks enter into partnerships out of several strategic objectives
Strategic Goals Description
Improve Product Improvements in processes and/or capabilities of existing banking products and/or expansion
Offering of the product portfolio.
Access Partner
Gain access to third-party technologies outside of the bank’s own development capabilities.
Technology
Access Partner
Gain access to a partner’s existing customer base, its partners and and/or its expertise.
Network
Increase Efficiency Decrease costs, time, and/or effort of the bank or somehow streamline its processes.
Enter New Markets Expand specific services to a new geographical market and/or to an international level.
Partnerships could be classified into more than one strategic goal

There were seven common forms of partnerships prevalent in the last
several years
Forms Description
White- Proven technology licensed out to financial institutions as a fully supported solution developed by a third-party
Labeling provider, allowing seamless rebranding and rapid speed-to-market.
Contracting a third-party to take over activities or processes related to bank’s business operations; little
Process Outsourcing involvement in the activities by financial institution once outsourced to third party provider.
Partnerships allowing consumer-initiated actions using third-party services (on a non-bank platform under the
API
name of the TPP) which require access to a customer’s data located in a bank’s infrastructure or the bank’s infra-
Integration structure itself.
Partnerships with startups in either a business accelerator or incubator environment; banks guide promising
Development startups with unproven concepts to navigate the regulated banking system in exchange for exclusive access to the
startups’ technology and management team.
Partnerships where banks and third-party providers combine efforts and resources to improve or develop new
Collaboration products or services – e.g. product co-creation.
Instead of distributing external parties’ products, partners refer customers through to one another depending on
Referral the type of services requested.
Only strategic partnerships considered; partnerships with a focus on financial returns as the main objective were not considered

Appendix B
Comparison Germany vs. the Netherlands

The development of the number of new partnerships differs significantly in
Germany and the Netherlands
German Market Dutch Market

60 90
80
50
70
40 60
50
30 58 59
51 40 81
20 39 41 30 55
35 Total
53 Total
2925 20
10 19 Incumbents 34 Incumbents
16 17 10 19 17 19 26
1211 1110 13 9 13 13 18 17
4 3 1 4 Challengers Challengers
0 1 1 0 4 0 1 2
≤2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017
• In the German market, as well as in the Dutch market, the same sample size was chosen (5 incumbent banks, 3 challenger banks) which is why the total
number of partnerships is comparable.
• Even though the Dutch market is significantly smaller that the German market, the Dutch banks entered into more partnerships than the German banks.
• The ending of HVB’s Fintech engagement only partly explains this difference, as HVB stopped its program only in Summer 2018.
• The fact that the Dutch enter into more new partnerships per year may be due to a generally more open approach to digitization and innovation in the
Netherlands.
• In the Netherlands, the number of partnerships concluded by challenger banks in 2017 rose only slightly compared to 2016. It can be assumed that, similar to
Germany, the number of new partnerships in the Netherlands will eventually flatten out and decrease.

The distribution of strategic goals of Incumbents in Germany is similar
to that in the Netherlands, whereas that of challengers is different
Germany Netherlands
• The distribution of strategic goals of incumbent banks in 100% 3% 2%
Germany is similar to that in the Netherlands. 7% 3% 2% 2% 2%
11% 4% 10% 0%
90%
• In Germany, many challenger banks are pursuing the strategic 15%
goal of profiting from the partners' customer base through the 80% 14% 21% 14%
partnership. Therefore, the goal "access partner network"
accounts for about 20% of the overall goals. Dutch challenger 70%
banks focus more on the technological qualities, the partners 60% 26% 16%
offer. Apart from this difference, the distribution of strategic goals 29%
in Germany and the Netherlands is also quite similar. 50%
40% 79%
30%
52%
46% 42%
20%
10%
0%
Incumbents Challengers Incumbents Challengers
Reduce Risk Increase Efficiency Access Partner Technology

Enter New Markets Access Partner Network Improve Product Offering

Many trends in Germany and the Netherlands are similar but in the overall
distribution of partnerships, differences can be seen
Germany Netherlands
• In both countries, API Integrations are playing a major role in the 100%
6%
realization of partnerships; the challenger banks in the 12% 10% 11%
Netherlands, however, are using this form of partnership more 90% 9%
often than the German challengers. 12% 9%
80% 15% 9%
• In the Netherlands, about 19% of the incumbent banks’ 11%
partnerships were focused on supporting the partner in 70% 19% 19% 2%
developing its business models – in Germany, no such trend 21% 6%
60% 0%
could to be recognized. The access to the partners’ technologies
2% 12%
and management teams are not exclusive and the banks do not 50%
provide the same assistance as incubators or accelerators. 29%
40%
• White-Labeling and Outsourcing are a form of partnerships that, 27%
generally, is used more often in Germany than in the 30% 60%
Netherlands. 47%
20%
• Especially identification processes in Germany are often outsourced. In 28%
the Netherlands, digital identification is not such a new phenomenon 10% 23%
and banks therefore developed such processes themselves or do not
report about them. 0%
Incumbents Challengers Incumbents Challengers
Referral BPO Collaboration

White-Label Development Integration

The partnership structure distribution for individual goals in Germany
exhibit similarities as well as differences compared to the Netherlands
Germany Netherlands
• Partnerships for improving product offering: 100% 0%
7% 4% 6% 8% Referral
• In both countries, Integrations are the most commonly used kind of 15% 13%
90% 4% 8% 0%
partnership for improving the product offering. In the Netherlands, 16% 3% 27%
4% 2%
however, Integrations for this strategic goal are even more prominent. 80% 8%
Furthermore, in the Dutch market, banks regularly also help developing 19%
70% 15% 6%
young companies to help them create and offer their product / services, 33%
whereas in Germany, the banks use White-label and Outsourcing 60% 8% 46%
1% 20%
solutions with established companies more often. 47%
50% 16%
• Partnerships for accessing the partner technology:
40%
• In Germany, the banks mainly outsource their processes when wanting
to use their partners’ technology or, to a lesser extend, enter into some 27%
30% 3% 60%
sort of collaboration or use a white-label solution. In the Netherlands, 50%
banks barely outsource the processes but use White-label solutions, 20% 41% 37%
21%
help developing their partners, enter into collaborations or use
10% 20%
integrations in almost equal shares.
7%
0% 0%
• Partnerships for accessing the partner network:
• In Germany, many of the partnerships have been entered into, in order Improve Access Access Improve Access Access
to benefit from the customer base of the partners. Therefore, the banks’ Product Partner Partner Product Partner Partner
infrastructure was often integrated into that of the partners and thus Offering Technology Network Offering Technology Network
gave the former the ability to offer their services also to their partners’
customers. In the Netherlands, the banks almost exclusively form colla- White-Label Development Integration
borations or help developing companies, probably because they want to BPO Collaboration
have access to the experts’ knowledge within the partners’ companies.
PwC’s Digital Services In both countries, the goals “Improve Product Offering”, “Access Partner Technology”, and “Access Partner Network” are making up for more 42
Platform Banking & Digital Ecosystems than 85% of the overall goals. Therefore, the comparison on this slide is limited to these three goals.

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PwC Study – March 2019

Platform Banking & Digital Ecosystems

Holger Junghanns Partner, PwC DE

PwC’s Digital Services 2

Previous Research Goals

Time Period Source of Data Research Analysis

PwC’s Digital Services 3

PwC’s Digital Services 4

PwC’s Digital Services 5

• In total, Incumbent Banks concluded more partnerships than # of Partnership

• Until 2016, a strong increase in the number of new partnerships 55

• It is likely that in the last 2 months of year 2018 additional new 40

• Generally, Incumbent banks entered into more Average Number of Partnership

• The number of partnerships without equity participation of banks

• In case of partnerships with financial participation from banks, the

• This leads to the conclusion that banks primarily invest in their

PwC’s Digital Services 8

• Challenger Banks rarely enter into equity partnerships.

PwC’s Digital Services 9

• The partnerships that banks enter into in order to get access to

Improve Product Offering Access Partner Network Enter New Markets

PwC’s Digital Services 10

• Nonetheless, the proportion of partnerships designed to improve 80% 12%

• Regarding the Incumbent Banks, the proportion of partnerships 70%

50% Enter New

• Financial Investments (11%): • According to the “PwC-Kooperationsradar” 60% of future

PwC’s Digital Services 18

PwC’s Digital Services 19

PwC’s Digital Services 21

• Nowadays, trends in technology, regulation and Front Office: Sales &

PwC’s Digital Services 22

Asset-Liability Management, KYC, etc.

6. Aggregators: An aggregator combines different (financial) services Asset

7. (Robo) Advisors & Services: This layer encompasses the customer

mobile payments, lending, robo-advice etc. P2P Lending

7. (Robo) Advisors & Services: A lot of innovation has happened in

capabilities and earnings model. Capabilities vary from

PwC’s Digital Services 25

Traditional Business Strategy Ecosystem Business Strategy

How do we continuously optimize connections to win, serve,

API Digital account

PwC’s Digital Services 27

PwC’s Digital Services 28

PwC’s Digital Services 29

Ecosystems… … bring opportunity… … but also involve challenges

PwC’s Digital Services 30

Ecosystem challenges Typical questions to consider

PwC’s Digital Services 32

Categorization Description Examples

PwC’s Digital Services 33

Service Sectors Description Examples

Service Sectors Description Examples

Blockchain • Crypto currencies

Comparison • Platforms comparing offerings (mostly loan- / financing-related) of banks

Online • Identification solutions that replace traditional identification processes, such as

Strategic Goals Description

Partnerships could be classified into more than one strategic goal

PwC’s Digital Services 37

PwC’s Digital Services 38

German Market Dutch Market

PwC’s Digital Services 39

Reduce Risk Increase Efficiency Access Partner Technology